4/13/2009

Yes, Rightsideproject is linking to a story from The Nation. Wonders will never cease.

The short version: legislation passed in 2005 to encourage the use of alternative fuels has perversely resulted in expanding the use of traditional fuels while providing a tax subsidy to the paper industry. Paper companies realized they could get a $.50/gallon subsidy by adding diesel fuel to a byproduct of paper production that doesn't require it. Read the linked article for the gory details.

Call paper companies greedy bastards all you want, but businesses and individuals seek to minimize costs, including taxes, all day every day by any available legal means. Certainly one player by itself can choose to ignore the subsidy but as a group the industry will inevitably ferret out these goodies. If International Paper doesn't its competitor will, putting IP at a comparative disadvantage (if you plan to argue W. and the Republicans intentionally orchestrated this tax gaming, please call a therapist and avoid sharp instruments). And just like any subsidy where the benefit is concentrated and the cost is diffused, the beneficiary (particularly one with rooms full of lawyers, consultants and accountants) will scour the tax code like mad to find it and fight like hell to keep it.

I love the smell of perverse effects of good intentions in the morning. Smells like. . . .victory.

4 comments:

Frank
said...

I agree with every word you wrote, up until your final paragraph. Why does this appeal to you? You seem to be smart enough to understand that this is 1) a waste of taxpayer money 2) a waste of fuel and 3) provides the wrong incentives for the paper industry.

This loophole is easily closed if our congress-critters have the spine to do so (and we know they don't). My reaction as a Liberal is to let my Representatives (yes, I capitalized that intentionally) know that this is a problem that should be fixed. Your reaction is to gloat. That's victory to you?

1) I'm being sarcastic2) It's a staggering waste of money and the sooner it's fixed the better. Good intentions (as this or that group defines them) are, yet again, foiled by human ingenuity. I'm amused when the smarter than thou crowd takes it on the chin, even in a microscopic way. Frank, do you think the smarter than thou crowd will learn to tread lightly, very lightly, lighter than they currently do, when subsidizing behavior or will they learn they weren't smarter enough than thou? And this is just one example that we happen to know about. How many more are there that we don't know about?

TDP,I wonder what our auto industry would look like today if, instead of passing the CAFE standards in 1975 our spineless politicians had imposed a gas sales tax of, say 10%. Among the unintended consequences of CAFE was the domestic auto companies outsourcing production so some of their domestic fleet counted as "imports". It also messed with their pricing structure--selling small cars at a loss to increase fleet average so they can sell more of their highly profitable large cars and light trucks without incurring a penalty. CAFE also does nothing to change consumer behavior as a gas tax would. The money raised by the gas tax should (but probably wouldn't) be used to pay for some of the externalized industry costs (roads, pollution control, need for military abroad to protect oil interests, etc).

I'm sure there are plenty of other examples. This one just came to mind first.